Real estate sales down 8 percent

Friday

Jan 18, 2008 at 2:00 AM

By Joshua Balling I&M Managing Editor

Fresh off a second straight year of declines in total dollar volume and number of sales, island real estate agents are predicting more of the same for 2008 amid nationwide economic frustration and uncertainty surrounding the upcoming presidential election.

Last year, $841.5 million in real estate changed hands, down 8 percent from $917.2 million the previous year, and well below the boom years of 2004 and 2005, when $1.06 billion and $1.19 billion in sales were recorded, according to statistics compiled by Denby Real Estate owner H. Flint Ranney.

The average home price last year dipped 5 percent, from $2.38 million to $2.25 million, and the number of homes sold was also down 6 percent, from 475 to 446.

“The market is slowing down. The country seems to be heading into a recession, and the stock market is indicating that. We’re looking at a slow year in 2008. It’s just the economy slowing down,” Ranney said. “It might be a couple years before we’re out of this. But it’s not the first time. We’ve been through this before, and we’ll go through it again. It’s all cycles. You just have to outlive it.”

“Will we see a boom? I don’t believe so. Will we have a comparable year? Perhaps,” he said. “Because of what’s happening on the national scene, I don’t think we’re going to start seeing real movement until later on in the spring, simply because until we have some clarity on the candidates in the presidential election, and comfort with respect to the actions the Federal Reserve is taking to combat the recession, the consumer is going to be cautious.”

Source: H. Flint Ranney, Denby Real Estate

On average, Nantucket homes last year sold for 88 percent of their listing price, down from 91 percent in 2006 and 93 percent in 2005. Particularly at the high end, however, some prices were significantly slashed. An eight-bedroom compound on 14.8 acres in Quidnet, originally listed for $19.5 million, for example, sold in late December for $10.25 million.

Brokers are predicting continued price reductions, believing many properties are still overvalued by their sellers.

“I think there’s a lot of overpriced inventory still,” said Penny Dey, co-owner of Atlantic East Real Estate. “When you’re in a very strong market, when the market starts to change, people tend to forget they’re not in that market anymore. Going forward, when a property is priced correctly, I think there will be people hanging out waiting to buy.”

On the positive side, Nantucket’s real estate market has remained largely insulated from the subprime mortgage crisis, slow job growth and other economic factors decimating mainland home sales. The island’s two banks don’t issue subprime mortgages, and those solvent enough to own homes on the island generally aren’t being forced to sell them quickly.

The upper end of the market remained exceptionally strong in 2007, as sales over $5 million accounted for more than 24 percent of the market, and 74 percent of all sales were over $1 million. Buoyed by those high-end sales, the median home price – the exact middle of the market – last year climbed 1 percent from $1.55 million to $1.56 million.

Due in large part to the ever-dwindling supply of vacant buildable land, the average lot price also rose 4 percent from $2.3 million to $2.4 million.

Topping the list of transactions in 2007 was the $26.5 million sale of just under eight acres of vacant waterfront land on Eel Point Road, followed by the $11 million paid for 8.9 acres of undeveloped land on Burnell Street in Sconset, the $10.7 million sale of three acres in Dionis, and the $10.5 million sale of the East Brick on Main Street, one of the three Georgian-style mansions built in the 1830s by whaling merchant Joseph Starbuck.

Source: H. Flint Ranney, Denby Real Estate

“No one is ever recession-proof, but that’s the sector of the market where the property and the location are the critical factors, much, much more so than the price,” Beaugrand said. “From these buyers’ point of view, it’s an allocation of one form of equity investment to another.”

And while they acknowledged that 2007 wasn’t as profitable a year as they would have liked, and 2008 is shaping up to be the same if not a little worse, island real estate agents remain optimistic about the long-term stability of the market.

“I think the 2007 market actually turned out better than we thought,” said David Callahan, co-owner of Lucille Jordan Real Estate. “The important thing is, people aren’t willing to trade in the equity of their homes here unless they can get the equity out. The teaser interest rates were great, but they’re going to go down again, and probably pretty low. This crazy appreciation couldn’t continue. Twenty to 30 percent a year is unattainable on a constant level. I think we’ll continue to see appreciation, just at a more moderate level.”

Brokers also point to a strong second half of 2007, when total dollar volume was up 15 percent over the same six months the previous year. The number of sales was also up 10 percent in the second half of 2007 compared to the same time period in 2006: 253 transactions compared to 226.

“Hopefully we can carry some of that momentum forward,” Callahan said.

“The fact of the matter is, Nantucket is a second-home community, and the Wall Street person, the executive with the major company, the people who live in the affluent communities around our major cities have always been our clientele. Once they feel comfortable in their own surroundings again, they will start to look on Nantucket.”

Home sales at the very low end of the spectrum were also strong in 2007, particularly those in the Abrem Quary 40B affordable housing subdivision off South Shore Road.

More than a dozen of those homes were sold at below market value – between $260,000 and $300,000 – to qualified buyers chosen by lottery. Another handful were sold for between $400,000 and $500,000 by the developer.

“He didn’t need to do that. That was obviously a major help in getting people into there own homes,” said Aaron Marcavitch, executive director of the Nantucket Housing Office, which oversees a number of affordable housing programs.

“Unfortunately, I don’t know where that takes us next. There’s nothing immediately next on the horizon. It had a major impact in 2007, but I don’t know how it will shake out for 2008.”

The Housing Office’s covenant program, in which property owners are able to sell their secondary dwellings to qualified buyers at below market rates, has slowed down, but is “still chugging along,” Marcavitch said, with about 35 covenant units sold in the last four years.

On the other hand, the current economic uncertainty nationwide is making it harder for the lower end of the buying spectrum to afford even the covenant homes, which top out at about $460,000, he added.

“The low end, where we’re dealing with these affordable units, are people who are more affected by the changing numbers in the rest of the world. Cracking that nut of $450,000 or $460,000 on a covenant home, that’s a tough proposition. I’m uncertain about which way the covenant is going to go. The reality is, we have to look at people in that range.

The maximum income to buy a covenant home is $122,000, and it’s tough to stay here on that, especially with a mortgage.”

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